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ZAMBIA REVENUE AUTHORITY Corporate Governance Workshop 12 th August 2011 Lake Kariba Inns, Siavonga, Zambia. The Business Case for Corporate Governance and Challenges in State Owned Enterprises Presenter: Chabuka J. Kawesha Member – Institute of Directors [IOD] - PowerPoint PPT Presentation
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ZAMBIA REVENUE AUTHORITY
Corporate Governance Workshop 12th August 2011
Lake Kariba Inns, Siavonga, Zambia
The Business Case for Corporate Governance and Challenges in State Owned Enterprises
Presenter: Chabuka J. Kawesha Member – Institute of Directors [IOD]
Head - Regulatory Affairs – Government & PR, AirtelBoard Chairman, Pensions and Insurance Authority [PIA]Vice President - South, Zambia Association of Chambers of Commerce and Industry [ZACCI] Chairperson - Financial Sector Development Plan [FSDP] Payment Systems Working Group, Bank of ZambiaMember - Digital Migration National Task Force [DMNTF], Ministry of Information and Broadcasting Services [MIBS] Member - E-Government Implementation Steering Committee, Ministry of Communications & Transport [MCT]Civil & Commercial Mediator [South Africa & UK] / Court Annexed Mediator [Zambia]
• Corporate Governance
• The Business Case for Corporate
Governance
• Challenges in State Owned Enterprises
[SOE]
Focus of Presentation
Recall and improve our understanding of corporate governance and board directors’ responsibilities
Share the competencies directors and management require to implement responsible corporate governance practices
Share director experiences and build networkswith peers
Goals of Presentation
3
“Corporate governance is the systemby which companies are directed and controlled….”
Sir Adrian Cadbury, UK, 1992
“Corporate governance refers to the structures and processes for the
direction and control of companies.”
IFC
What is Corporate Governance?
4
For efficiency – Compete, Job creation For probity [Honesty, Integrity, Honor] – Investor
confidence & assurance With responsibility – Address legitimate concerns Both transparent and accountable –Strong economy
“A skilled, predominantly independent and well-organized board of directors would make it possible to set the right strategy of the company and properly oversee its
management’s performance.” IFC
Corporate Governance Means Leadership
5
Agency And Stewardship
6
Corporate Governance issues arise from the roles of agency and stewardship
Agency – Involves transfer of capital from shareholders
Stewardship – Directors’ role as guardians of the company’s assets
7
A Company’s Corporate Governance System
Capital will flow elsewhere if a Country:
◦ Does not have a reputation for strong corporate governance practices
◦ Exhibits Bad governance /Lack of Governance prevails
◦ Investors are not confident of the level of disclosure
◦ Opts for lax accounting and reporting standards
◦ Weak regulatory governance
◦ Demonstrates a clear absence of regulatory transparency
Strong Corporate Governance attracts Investors
8
Strong commitment to corporate governance reforms
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The five [5] key elements ofgood corporate governance
Five [5]Elements of Corporate Governance
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Accountability◦ Management to Board◦ Board to Shareholders◦ Public & Shareholder confidence
Fairness◦ Protect shareholders’ rights◦ Regulatory transparency
Transparency ◦ Timely & accurate disclosure◦ Regulatory transparency◦ International Best Practises [IBP]
Responsibility ◦ Recognise stakeholders’ rights◦ Strong regime of zero regulatory capture
Pillars Of Corporate Governance
10
Corporate Governance
is essentially
about leadership
11
Honesty Transparency Integrity Openness Trustworthiness Respect Truthfulness Responsibility
Ethical Values
It is Important to recall &
uphold ethical values
12
Corporate Governance System
“If management is about running business, governance is about seeing that it is run properly. All companies need governing as well as managing.” Prof. Bob Tricker, 1984
Competing Tensions
13
“An effective system of corporate governance must strive tochannel the self-interest of managers, directors and the
advisorsupon whom they rely into alignment with the corporate,
shareholderand public interest.”
Ira MillsteinSenior Partner, Weil Gotshal & Menges, LLPSenior Associate Dean, Corporate Governance, Yale School of ManagementChair Emeritus, the Forum’s Private Sector Advisory Group
Aligning Corporate, Shareowner, Public Interests
14
Ensuring the basis for an effective corporate governance framework
Rights of shareowners and key ownership functions
Equitable treatment of shareowners Role of stakeholders in corporate governance Disclosure and transparency Board responsibilities
OECD - Organization for Economic Co-operation and Development
OECD Principles
15
The OECD Guidelines on Corporate Governance of State-Owned Enterprises offer concrete advice on corporate governance challenges that need to be addressed when the state is a corporate owner, helping governments to assess and improve the way they exercise their ownership functions in state-owned enterprises.
The first survey of corporate governance of state-owned enterprises (SOEs) in OECD countries was published in 2005. This 2011 update reports on the significant changes in the SOE landscape since then and includes information about the 4 new OECD countries - Chile, Estonia, Israel and Slovenia.
OECD Principles
16
17
Companies / Institutions with good governance:
Have better access to capital Command a premium from investors Improve oversight, monitoring Perform better operationally/financially Ensure effective decision-making Draws regulatory confidence [In case of
Public institutions]
The Business Case For Corporate Governance
The Five Key Elements & the Business Case for Corporate Governance
Board commitment The board discusses corporate governance issues and has created corporate governance committee The company has a corporate governance champion A corporate governance improvement plan has been created Appropriate resources are committed Policies and procedures have been formalized and distributed to relevant staff A corporate governance code has been developed The company is publicly recognized as a corporate governance leader
Good board practices Clearly defined roles and authorities Duties and responsibilities of directors
understood Board is well structured Appropriate composition and mix of skills Appropriate board procedures Director remuneration in-line with best practice
Board self-evaluation and training conducted
Transparent disclosure Financial information disclosed Non-financial information disclosed Financials prepared according to IFRS High-quality annual report published Web-based disclosure
Well defined shareowner rights Minority shareowner rights are formalized Well-organized general assembly conducted Policy on related-party transactions Policy on extraordinary transactions Clearly defined and explicit dividend policy
Control environment Independent audit committee established Risk-management framework present Internal control procedures Internal audit function Independent external auditor conducts audits Management information systems established Compliance function established
18
Challenges in State Owned Enterprises
19
Adapting to the globalization, liberalization and technological changes - Governments should undertake reforms in the way they run their SOEs.
Effective Legal and Regulatory Framework - The framework for state-owned enterprises should ensure a level-playing field in markets where state-owned enterprises and private sector companies compete in order to avoid market distortions.
Restoring Public Confidence once damaged.
Politically Exposed Persons [PEP] – A PEP is a politically exposed person and is one who is entrusted with prominent public functions. This opportunity comes with its own challenges from the political arena upon an individual.
Challenges in State Owned Enterprises
20
POLITICAL EFFECTS
Executive / Political directives - Potential to create diversion from key corporate governance principles.
Executive Lobbying [Insiders or Outsiders] – Potential to create diversion from key corporate governance principles.
Union Factors / Labors issues – Potential to create diversion from key corporate governance principles.
Government term and change – Potential to create diversion from key corporate governance principles.
Advise, Share, Lets us discuss…
Let us identify a number of State Owned Enterprises in Zambia What do you see as the main challenges or issues of focus for
State Owned Enterprises in Zambia that build a case for Corporate Governance
Discussion with ZRA team
Stakeholder IssuesEmployeesCustomersSuppliersCommunityShareowners
22
Stakeholder Issues
Employees Bribery, corruption
Customers Gifts, entertainment, Regulatory capture
Suppliers Conflicts of Interest
Community Confidential information
Shareowners Use of company assets
Stakeholder, Issues Focus
Citations / References
23
1. Global Corporate Governance Forum2. Institute of Directors (IOD), Zambia3. International Finance Corporation (IFC)4. OECD - Organization for Economic Co-operation and Development
Contact me:http://www.chabukakawesha.webs.com
Tel: +260 977 770069 /8981000
Thank you